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First published in the Finance Dublin year book 2025.
Following the cross-border conversion of Zurich Insurance plc from an Irish plc to a German joint stock company in January 2024, there has been increased interest in this innovative company law process. Here, we answer some frequently asked questions based on our experience on that transaction.
What is a cross-border conversion?
Cross-border conversions are a new form of corporate transaction allowing a limited liability company incorporated in one European Economic Area (EEA) member state to move its incorporation to another EEA member state without being wound up. This innovation in EU company law allows a limited company to change jurisdiction of incorporation while preserving its corporate identity and history. This facility became available under an EU directive, known as the Mobility Directive, that member states were obliged to implement into their national laws by 31 January 2023.
What's so special about that – don't we already have cross-border mergers?
We do have cross-border mergers. These involve merging a company incorporated in one EEA member state into another company incorporated in a different EEA member state. The original company is dissolved without liquidation once the merger completes. However, cross-border conversions and cross-border mergers are designed to do different things.
The purpose of a cross-border conversion is to enable a company to change its jurisdiction of incorporation without having to transfer any assets or liabilities. The company's assets and liabilities remain intact within the same corporate vehicle. This contrasts with a cross-border merger, the purpose of which is to merge one company into another. Only one company survives a cross-border merger; the other company's assets and liabilities are transferred to the surviving company. The business of the transferring company is transferred to and carried on by the surviving company, and the transferring company is dissolved.
A cross-border merger could be used to migrate a business from one EEA member state to another. This can be achieved by merging a company in one EEA member state into a shell company holding no assets or liabilities in another member state. However, it does not result in a company relocating from one EEA member state to another. The original company is dissolved on the merger and its business and affairs are conducted through the surviving company. It is also not an efficient relocation mechanism. For example, the parties to a cross-border merger may have to comply with additional procedures such as filings, registrations and transfer mechanisms to perfect the transfer of assets between the merging companies. This may include updating property registries and to transferring listed stocks and bonds through stock exchange mechanisms. Contracts may include clauses prohibiting assignment and, therefore, need counterparty consent or cooperation to novate. There may be doubt over whether certain liabilities incurred outside the EEA transfer under the merger. The transfer of a company's business may also create tax or accounting complications.
If the relocating company is not a wholly owned subsidiary within a group, the merger process can be cumbersome. For example, it may require the parties to commission an independent valuation of the merging companies and to determine a ratio for exchanging shares in the transferring company for shares in the surviving company (this is less likely to be an issue on a merger into a shell company in another EU member state to facilitate a change of jurisdiction).
Most of these complications are significantly reduced on a cross-border conversion because there is no transfer of assets or assignment of contracts. The business of the converting company continues to be carried on by the same corporate vehicle, albeit its jurisdiction of incorporation has moved to another EEA member state. Employees also remain employees of the company on their existing contracts. There is no exchange of shares. All shareholders continue to hold equivalent shares in the new jurisdiction to the shares that they held pre-conversion. However, if the company has minority shareholders who vote against a conversion approved by the requisite majority of shareholders, those shareholders can require the company to acquire their shares at a value set out in the draft terms of conversion. An independent expert must report on the compensation proposed in the draft terms of conversion unless all shareholders waive this requirement.
Why not just convert to a Societas Europaea (SE)?
An SE can move its incorporation from one EEA member state to another. However, converting a limited company to an SE is not straightforward. First, if the company is a private limited company, it must convert to a plc. Second, unless the company concerned has had a subsidiary in another EU member state for at least two years, it must then merge into a company in another EU member state to create an SE. This adds a further potentially expensive and time-consuming step to the process. For example, in Ireland, a cross-border merger requires High Court approval. Creating an SE also involves a significant level of employee engagement. The new conversion process allows a limited liability company to change jurisdiction within the EEA without having to convert to an SE.
What's the catch with cross-border conversions?
There is no catch. That's not to say that the conversion process is entirely straightforward nor that it is free of complications. For example, a converting company must adopt a new constitution and adapt its systems and controls to reflect its new jurisdiction. The company law and broader compliance environment in its new jurisdiction may be quite different to the environment in its original jurisdiction. However, similar complications would arise on a cross-border merger with a company in the new jurisdiction. The company may be required to complete various registrations, such as new tax registrations, in its new jurisdiction. It may need to appoint new auditors. If the converting company is regulated, it may need to be reauthorised in the destination member state. If the company continues to have employees and infrastructure in the departure member state post-conversion, it may be required to register a branch in the departure member state. If the branch constitutes a permanent establishment, it may be liable to corporation tax. However, these issues are equally likely to apply to an SE migration or a relocation by cross-border merger.
Conversion is not available to every company. The Mobility Directive applies to solvent limited liability companies, only. Therefore, insolvent companies and unlimited companies cannot benefit from conversion. The process is also unavailable to certain collective investment funds and to credit institutions and investment firms that are subject to resolution procedures.
Conversion is not suitable if the commercial objective is to combine two companies or businesses.
Conversion may also incur exit taxes.
What does the conversion process involve?
The converting company must comply with what are known as “pre-conversion requirements” in the departure member state, which include the following:
The law of the departure member state exclusively governs these pre-conversion requirements. The law of the destination member state (which may be Ireland or another EEA member state depending on whether the conversion is into or out of Ireland) governs the final approval of the conversion and the registration of the converted company. Final approval is generally granted by a local companies registry by way of completion of the registration of the converted company as a limited liability company in the destination state companies register.
Following the final approval, the company registrars in the departure and destination member states update the company registries to reflect the conversion.
For advice or further information on this topic please contact James Grennan, partenr, Stephen Quinlivan, partner or any member of ALG’s Insurance & Reinsurance team.
Date published: 17 June 2025
